Superannuation is something of a bit of a mystery for most.
We as Australians have a love/hate relationship with superannuation.
In some cases it’s complete financial apathy; we tend to just ignore it. It’s something that is there, but we know we’re not going to get access to it for a long time, so we tend to ignore it.
It’s okay if you haven’t taken an interest in your super, it’s what you do know that will define you and benefit it will provide in the future.
I tend to think a bit different, ignore it at your own peril. Outside the family home superannuation is one of the biggest assets that you are going to own for most people.
It’s, therefore, no surprise many are confused and annoyed with super. It’s one of those things where the government continually changes the goalposts.
They make it harder and harder to understand the rules.
Add to that the experience through the Global Financial Crisis and people have become disengaged with their superannuation. There’s no reason for that to happen.
It’s due to misinformation and not taking an interest in your own superannuation and financial welfare.
So let’s talk about what is superannuation actually is?
A lot of people confuse super with being an investment.
I’m here to tell you that superannuation is not an investment. Superannuation is a tax structure, first and foremost.
From there, you then place money into investments. So they are two completely separate issues.
I just want to educate you a little bit on what superannuation is, and over the coming weeks, we’re going to drill a bit deeper into the basics, and give you a better understanding of what superannuation is and why you need to really take an interest in it.
It was introduced in the 1980s as a way of people funding their retirement. Superannuation is there to build up funds to fund your retirement. That’s solely what it’s there to do.
All the super in Australia is worth approx $1.6 trillion dollars.
The baby-boomer generation coming through, they didn’t have the full benefit of the superannuation system. However a lot of people now in the workforce do, and they’re going to build up substantial amounts in their superannuation account.
Earlier I mentioned it was a tax structure, and that’s what it is.
Your money goes in, it’s taxed at 15% on the contributions that are made, either by your employer or alternatively your own salary sacrifice contributions which we’re going to talk about in later weeks.
While that money is invested in your superannuation, it is taxed ongoing at 15% on all earnings. If there are capital gains that are realised through the fund, then you’re taxed at 10%. It will continue like this until you retire from the workforce.
In the last couple of years, there have been substantial changes in how super is taxed pre and post-retirement that has changed the landscape somewhat.
Once you hit retirement, or you finish in the workforce, then your earnings are tax-free within the superannuation fund. So you pay completely no tax on the earnings, or on the capital gains, which is a significant benefit.
When you start receiving an income from it after completing work or retired from the workforce, then the money that you receive is also tax-free from that superannuation. Tax free income.
People over the past have mixed their tax structure with investments. A large number believe that superannuation is not a good thing given some of the things that happened in the GFC.
I’m here to tell you that they are two completely separate issues, and you can’t tie them together.
We need, as Australians, to take more responsibility for the money we have in our super and use it to our benefit to build our retirement fund, and to allow us to take advantage of the tax benefits so that we can enjoy it when we finally reach that day where we walk out of our last job, we pack up our desk, put everything in the shoe box, we hand in the card to your boss and walk out that merry door never to return again.
To start that new journey, a journey that you’ve been thinking about for some time, where you can start to do things that you never had time to do when you were working. A new life, new activities, time to take it easy, take up a new hobby, go and do some travel, spend time with the family. All things that are worthwhile.
So next week, in part two of the Superannuation Education Series, we are going to talk through the most common contributions that people can make into superannuation. Give you some clear guidance on how to use those rules to your advantage.
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Make it a great Life!
Glenn Doherty – CFP – Founder & Financial Organiser at Jigsaw Private Wealth
Mob: 0401 253 729
Advice Disclaimer: Any reference in this publication to the provision of advice refers to advice of a generic nature, and should not be taken as product or investment recommendations. Before any action is taken based on the information provided, independent financial advice from a licensed financial adviser should be sought. Financial Freedom Project Pty Ltd ATF GA & DC Doherty Family Trust Trading as Jigsaw Private Wealth is a Corporate Authorised Representative of Exelsuper Advice Pty Ltd. The information contained in this publication is of a factual nature only and is not intended to constitute financial product advice. Information is current as at June 2018. This is an online information blog. It does not imply an offering of securities.